JWG

Would a Trade War Help Solve the Problem of Excess Capacity?

Michael,

Thanks for another excellent article.

A question. Suppose China actually did dramatically stimulate its domestic consumption and imports. How would that affect the value of the dollar?

One might argue that taking a trillion dollars out of the Chinese mattress and restoring them to circulation would increase the world supply of dollars and would be inflationary.

Or one might argue that it would choke the gusher of uneconomic dollar debt at the source (the US current account deficit), and shift US lending away from consumption and toward investment in real productive assets, stabilizing the dollar.

I can't see an argument that it would be outright deflationary, but maybe I lack imagination.

Any opinions?

Thanks